Introduction to Financial Accounting Test
Questions
Course Introduction
Introduction to Financial Accounting offers students a foundational understanding of how financial information is recorded, reported, and interpreted in business organizations. The course explores basic accounting principles, including the accounting cycle, preparation and analysis of financial statements, and the use of accounting information in decision-making. Students will learn about key concepts such as assets, liabilities, revenues, expenses, and shareholders equity, as well as the regulation and ethical considerations in financial reporting. Through practical exercises and real-world examples, the course equips students with the skills necessary to analyze financial statements and gain insights into an organizations financial health.
Recommended Textbook
Financial Accounting 13th Edition by Carl
S. Warren
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Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Which of the following is true in regards to a Limited Liability Company?
A) Makes up 10% of business organizations in the United States.
B) Combines the attributes of a partnership and a corporation.
C) Provides tax and liability advantages to the owners.
D) All are correct.
Answer: D
Q2) If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner's equity was a $200,000 increase.
A)True
B)False
Answer: True
Q3) How does receiving a bill to be paid next month for services received affect the accounting equation?
A) assets decrease; owner's equity decreases
B) assets increase; liabilities increase
C) liabilities increase; owner's equity increases
D) liabilities increase; owner's equity decreases
Answer: D
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Liabilities are increased with debits and decreased with credits.
A)True
B)False
Answer: False
Q2) Prarie Clinic purchased X-ray equipment for $7,500, paid $2,250 down, with the remainder to be paid later. The correct entry would be
A) Equipment 2,250
Cash 2,250
B) Cash 2,250
Accounts Payable 5,250
Equipment 7,500
C) Equipment Expense 7,500
Accounts Payable 2,250
Cash 5,250
D) Equipment 7,500
Accounts Payable 5,250
Cash 2,250
Answer: D
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following pairs of accounts could not appear in the same adjusting entry?
A) Service Revenue and Unearned Revenue
B) Interest Income and Interest Expense
C) Rent Expense and Prepaid Rent
D) Salaries Payable and Salaries Expense
Answer: B
Q2) At the end of the current year, $3,700 fees have been earned but have not been billed to clients. Journalize the adjusting entry to record the accrued fees.
Answer: 11ea8f91_7c8e_9464_b161_a5d4bc6ee6f7_TB2085_00_TB2085_00_TB2085_00
Q3) An adjusting entry to accrue an incurred expense will affect total liabilities. A)True
B)False
Answer: True
Q4) Revenue recognition concept requires that the reporting of revenue be included in the period when cash for the service is received.
A)True
B)False Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Balance Sheet accounts are considered real accounts.
A)True
B)False
Q2) Balance sheet accounts
A) represent amounts accumulated during a specific period of time
B) are called real accounts
C) have zero balances after the closing entries have been posted
D) are not affected by adjustments
Q3) Unearned Fees appear on the
A) balance sheet in the current assets section
B) balance sheet as a current liability
C) balance sheet in the owner's equity section
D) income statement as revenue
Q4) It is necessary to post the closing entries to the general ledger.
A)True
B)False
Q5) Deferred expenses that benefit a relatively short period of time are listed on the balance sheet as current assets.
A)True
B)False
6
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Chapter 5: Accounting Systems
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Sample Questions
Q1) The total of the accounts receivable subsidiary accounts and the account receivable controlling account should balance to each other at the end of the period.
A)True
B)False
Q2) Subsidiary ledgers
A) are used only for Accounts Payable and Accounts Receivable
B) may be used for various ledger accounts
C) may be used for only for the Cash account
D) are never used for more than four accounts
Q3) Closing journal entries are recorded in the general journal.
A)True
B)False
Q4) The term B2C refers to transactions conducted between two companies.
A)True
B)False
Q5) Most accounting systems evolve as the business grows and requires changes in their methods for collecting, accumulating, and reporting information.
A)True
B)False
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shortage?
A) Merchandise inventory debit $158,000; Cost of Merchandise Sold credit $158,000.
B) Merchandise inventory debit $5,000; Cost of Merchandise Sold credit $5,000.
C) Cost of Merchandise Sold debit $163,000; Merchandise Inventory credit $158,000.
D) Cost of Merchandise Sold debit $5,000; Merchandise Inventory credit $5,000.
Q2) Income that be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.
A)True B)False
Q3) Discuss the following statement: "Operating cycles for all merchandising businesses are the same, with similar profit margins."
Include an example(s) to illustrate your explanation.
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Chapter 7: Inventories
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Sample Questions
Q1) When merchandise sold is assumed to be in the order in which the purchases were made, the company is using
A) first-in, last-out
B) last-in, first-out
C) first-in, first-out
D) average cost
Q2) Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold.
A)True
B)False
Q3) If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the
A) consignee
B) retailer
C) manufacturer
D) shipper
Q4) List three different security measures taken by stores to safeguard inventory.
Q5) Describe three inventory cost flow assumptions and how they impact the financial statements.
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Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) In preparing a bank reconciliation, the amount of deposits in transit is deducted from the balance per bank statement.
A)True
B)False
Q2) Describe the features of a voucher system and list typical supporting documents for a voucher.
Q3) Which one of the following below is not an element of internal control?
A) risk assessment
B) monitoring
C) information and communication
D) cost-benefit considerations
Q4) A debit or credit memo describing entries in the company's bank account may be enclosed with the bank statement. An example of a credit memo is A) deposited checks returned for insufficient funds
B) a promissory note left for collection
C) a service charge
D) notification that a customer's check for $375 was recorded by the company as $735 on the deposit ticket
Q5) List and define each of the five elements of internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) Receivables that are expected to be collected in cash in eighteen months or less are reported in the Current Asset section of the balance sheet.
A)True
B)False
Q2) At the end of the current year, Accounts Receivable has a balance of $675,000; Allowance for Doubtful Accounts has a debit balance of $5,400; and net sales for the year total $3,000,000. An analysis of receivables indicates the uncollectible receivables are estimated to be $45,000.
Determine (a) the amount of the adjusting entry for bad debt expense; (b) the adjusted balances of Accounts Receivable, Allowance of Doubtful Accounts; and Bad Debt Expense; and (c) the net realizable value of accounts receivable.
Q3) The journal entry to record a note received from a customer to replace an account is
A) debit Notes Receivable; credit Accounts Receivable
B) debit Accounts Receivable; credit Notes Receivable
C) debit Cash; credit Notes Receivable
D) debit Notes Receivable; credit Notes Payable
Q4) List at least three things that indicate a receivable may be uncollectible.
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Chapter 10: Fixed Assets and Intangible Assets
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Sample Questions
Q1) Capital expenditures are costs that are charged to Stockholders' Equity accounts.
A)True
B)False
Q2) On July 1st, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9 year life with a residual value of $16,000. Hartford uses units-of-production method depreciation and the bulldozer is expected to yield 26,500 operating hours.
(a) Calculate the depreciation expense per hour of operation.
(b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the third year of operations. Journalize the depreciation expense for each year.
Q3) All leases are classified as either
A) capital leases or long-term leases
B) capital leases or operating leases
C) operating leases or current leases
D) long-term leases or current leases
Q4) Minerals removed from the earth are classified as intangible assets.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) On June 8, Alton Co. issued an $95,000, 6%, 120-day note payable to Seller Co. What is the due date of the note?
A) October 8
B) October 7
C) October 6
D) October 5
Q2) The journal entry a company uses to record the payment of a discounted note is
A) debit Notes Payable and Interest Expense; credit Cash
B) debit Notes Payable; credit Cash
C) debit Cash; credit Notes Payable
D) debit Accounts Payable; credit Cash
Q3) According to a summary of the payroll of Scotland Company, $450,000 was subject to the 7.0% social security tax and $500,000 was subject to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes. The journal entry to record accrued payroll taxes would include:
A) a debit to SUTA Payable of $630
B) a debit to SUTA Payable of $18,900
C) a credit to SUTA Payable of $630
D) a credit to SUTA Payable of $18,900
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) When compared to a corporation, one of the major disadvantages of the partnership is its limited life.
A)True
B)False
Q2) After all noncash assets have been converted to cash and all liabilities paid, A, B, and C have capital balances of $10,000 (debit), $5,000 (debit), and $25,000 (credit). The cash available for distribution to the partners is $10,000.
A)True
B)False
Q3) Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 20%, salary allowances of $34,000 and $26,000 respectively, and the remainder equally. How much of the net income of $100,000 is allocated to Xavier?
A) $49,000
B) $51,000
C) $50,000
D) $56,000
Q4) Describe the items which should be covered in a partnership agreement.
Page 14
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Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
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Q1) If a corporation is liquidated, preferred stockholders are paid before the creditors and before the common stockholders.
A)True
B)False
Q2) The reduction of par or stated value of stock by issuance of a proportionate number of additional shares is termed a
A) liquidating dividend
B) stock split
C) stock option
D) preferred dividend
Q3) The main source of paid-in-capital is from issuing stock.
A)True
B)False
Q4) The dates of importance in connection with a cash dividend of $50,000 on a corporation's common stock are January 15, February 15, and March 15. Journalize the entries required on each date.
Q5) Paid-in capital may originate from real estate donated to the corporation.
A)True
B)False
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Only callable bonds can be purchased by the issuing corporation before maturity. A)True B)False
Q2) Selling the bonds at a premium has the effect of
A) raising the effective interest rate above the stated interest rate.
B) attracting investors that are willing to pay a lower rate of interest than on similar bonds.
C) causing the interest expense to be higher than the bond interest paid.
D) causing the interest expense to be lower than the bond interest paid.
Q3) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line amortization of the premium is $1,416. A)True B)False
Q4) The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance sheet. A)True B)False
Q5) (a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds which sold for $104,000.
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) Investment in certificates of deposit and other securities that do not change in value are reported in the balance sheet as:
A) equity investments
B) available-for-sale securities
C) cash and cash equivalents
D) held to maturity securities
Q2) On June 1, $50,000 of treasury bonds were purchased between interest dates. The broker commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment - Treasury Bonds account?
A) $50,000
B) $50,500
C) $49,500
D) $53,000
Q3) When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Q1) Which of the following types of transactions would be reported as a cash flow from investing activity on the statement of cash flows?
A) issuance of bonds payable
B) issuance of capital stock
C) purchase of treasury stock
D) purchase of noncurrent assets
Q2) Free cash flow is cash flow from operations, less cash used to purchase fixed assets to maintain productive capacity and cash used for dividends.
A)True
B)False
Q3) Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed.
A)True
B)False
Q4) The statement of cash flows is not one of the basic financial statements.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) The auditor's report is where the auditor certifies that the financial statements are correct and accurate.
A)True
B)False
Q2) Unusual items affecting the prior period's income statement consist of errors and change in accounting principles.
A)True
B)False
Q3) In a common size income statement, the 100% figure is:
A) net cost of goods sold.
B) net income.
C) gross profit.
D) net sales.
Q4) What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analysis?
Q5) Why would you compare or not compare Coca-Cola and Pepsi-Cola (PepsiCo) as companies to each other?
Q6) Define solvency and profitability. How are they alike?
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